“Despite the pressure on AMTD and the low valuation, given relatively high commission exposure, continued pricing pressure in the sector and earnings risk, a lower interest rate backdrop, margin pressure, and a CEO transition into 2020, we are downgrading AMTD from Buy to Underperform,” Carrier wrote in a note.

Bank of America has an Underperform rating and $39 target for TD Ameritrade, a Buy rating and $41 target for E-Trade, and a Neutral rating and $42 target for Schwab.

Raymond James analyst Patrick O'Shaughnessy said investors need to understand the era of trading commissions is now over, and predicted E*TRADE Financial Corp (NASDAQ: ETFC) will likely be quick to follow suit in eliminating commissions.

“As a result of these cuts, we anticipate that the online brokers (ETFC and AMTD in particular) will also take actions to defend margins in the near-term, pulling back on discretionary expenses to mitigate the EPS impact,” O'Shaughnessy wrote.

Raymond James has an Outperform rating and $55 target for TD Ameritrade, an Outperform rating and $50 target for E-Trade, and an Outperform rating and $42 target for Schwab.

Not An Overreaction

Wells Fargo analyst Christopher Harris said that, given the potential negative EPS impact of the commission cuts, the sell-off in broker stocks isn’t necessarily an overreaction.

“All of that being said, we don’t necessarily want to sell the stocks down here given how much they have already traded off,” Harris wrote.

UBS analyst Brennan Hawken said TD Ameritrade’s commission cut will result in between a $220 million and $240 million quarterly revenue headwind.

“Interestingly, now that rack rate commission pricing has gone to zero, the argument that AMTD's earnings mix warrants a discount to peers seems less justified (with commission rev ex order routing now representing 12% of total, down from 25%),” Hawken wrote.

UBS has a Buy rating and $40 target for TD Ameritrade and a Sell rating and $33 target for Schwab.

Barclays analyst Jeremy Campbell said investors should simply stay away from online broker stocks all together for the time being.

“There are downside uncertainties to EPS and while better than modeled OpEx offsets are absolutely possible, the bigger concern is around the ‘right’ multiple to put on these businesses,” Campbell wrote.

Barclays downgraded TD Ameritrade to Underweight with a $31 target, an Underweight rating and $31 target for E-Trade, and an Underweight rating and $34 target for Schwab.